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Investors should not ignore the quiet yet important role that the agriculture industry plays within the modern economy. Although some parts of the world are still battling food scarcity and starvation, overall food availability has expanded remarkably in recent decades. As humankind looks to alleviate world hunger against the backdrop of skyrocketing population levels and global climate change, farmers will need to find ways to increase their productivity by embracing next-generation precision farming techniques.  

According to recent data from the U.S. Census Bureau, world population growth is slowing, though it is still expected to reach 9 billion by 2044. That means roughly 1-2 billion additional mouths to feed over the next two decades. Without a corresponding 10-30% improvement in agricultural production, standards of living would likely see some deterioration from current levels.

Technology holds the key to alleviating this potential crisis. Several studies have documented the increase in average daily caloric intake per person over the years. Thanks to more-efficient farming methods, food prices have remained relatively low and stable.

The U.S. heartland has been fortunate to see recent bumper crops in corn, soybeans, and wheat, but this luck may not last. As changes in the global ecosystem accelerate, climate patterns are showing indications of becoming even more erratic and extreme. Farmers looking for greater control over their fields will need to augment precision farming techniques with the insights of big data. 

Precision farming first emerged three decades ago in the 1980s, and has since become standard practice for many commercial farmers looking to maximize yields. Today, modern satellite imaging, wireless, and GPS technologies can provide farmers with detailed real-time maps of how their fields are doing. With these tools, farmers can accurately slice up farmland into smaller zones, which are individually managed to attain optimum conditions.

Variable-rate applications of seed, lime, fertilizers, pesticides, and water allow farmers to address the specific needs of different sections of the same field. As new types of air and soil sensors are developed, greater quantities of higher quality real-time information will become available. The superior image capturing ability of aerial drones will also likely see outsized growth once the FAA provides regulatory approval. As industry adoption picks up, many of these much smaller agricultural drone companies will likely become acquired by larger players looking to expand their agricultural offerings.

Managing inputs on a variable basis not only boosts the productivity of fields, but also typically provides cost savings. This means that farmers can lower the environmental impact of their businesses while improving their bottom line. With the proper decision making guidance, these adjustments can potentially be fully automated. Large firms that specialize in agriculture are well positioned to gleam these insights by leveraging their deep coffers and extensive troves of historical data.

The large seed companies such as Monsanto (MON), Dupont (DD Free Dupont Stock Report), Syngenta, and Bayer are fully aware of the data-driven push towards greater productivity. In addition to controlling the world’s commercial seedstocks, these companies have also funneled substantial resources toward data-centric ventures. To wit, Monsanto’s $1 billion acquisition of Climate Corporation has helped in bolstering its data analytical and predictive capabilities. Monsanto currently markets its FieldScripts program as a customized solution that maximizes corn yields according to the unique field conditions and history of a particular field. Dupont’s Pioneer Field 360 and Syngenta’s AgriEdge Excelsior also promise to help farmers unlock the yield potential of their crops.

Agricultural science companies should benefit from solid growth in the nascent agricultural consulting and data services segments. As this occurs over the long haul, they will begin to resemble information technology companies. With improved growth opportunities, valuation multiples may move higher.  

However, Silicon Valley is unlikely to stand still while this occurs. Indeed, International Business Machines (IBM Free IBM Stock Report) has a team of computer scientists studying ways to maximize the benefits from precision agriculture. Meanwhile, smaller startups have also entered the fray with the financial backing of tech giants such as Alphabet (GOOG). This healthy competition should help quicken the pace of advancement and may even generate new disruptive technologies. That said, agricultural science companies should still have an inherent advantage with their deep understanding and partnerships in the industry.

The ongoing march toward a more interconnected world where the “Internet of Things” is commonplace ought to provide favorable momentum for data-driven farming. As new farming technologies and equipment inundate farmers with a deluge of information, many will likely need some assistance in managing all of that data. Accompanied by engineered seedstock and agricultural productivity products, these advisory services ought to help farmers maximize yields, mitigate risk, and boost profits. With new opportunities to expand their businesses and deepen customer relationships, companies that are plowing ahead in this area hold much promise.   

For more information about the companies mentioned in this article, subscribers should check out our coverage in The Value Line Investment Survey.  

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.